It is all obvious or trivial except…

Banks create money so Moar Tax!

The second is that the current role of private banking in money creation is wholly dependent on central bank support: by themselves they do not create this value.
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Second, why aren’t we taxing the seigniorage that they enjoy now but which is very clearly not theirs?

What seigniorage profits?

No, I get the theoretical arguments, creating money ab initio is a profitable thing to do. Banks create money apparently, therefore they must profit from doing so.

So, where is that profit? How much is it?

Ah, there’s the problem. They don’t make excess profits, do they? Return on equity in banking is, I think I’m right, below the national average. Thus there aren’t such seigniorage profits. Either the process costs as much as it makes, or they’re not making money itself.

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18 comments on “Banks create money so Moar Tax!”

Don’t agree with this analysis since it is arguable that a large proportion of the excess profits have been syphoned off by the insiders (in the form of executive pay) prior to the calculation of Return on Equity.

‘Money’ is a credible and legally enforceable promise to pay something of real value at a later date. When you go into the bank asking for a loan, they make you sign a piece of paper promising to pay it back at a set rate. Your signature turns it from a 50p sheet of printed paper into a £100k asset, which the bank puts in its vault. In return for you giving the bank this piece of newly created but very illiquid money, the bank gives you an equivalent amount of highly liquid, already existing money. (The nominal difference, called ‘interest’, pays for the risk of default, admin costs, interest paid to depositors, all of which the bank has to pay, and the bank’s profit.) The bank creates no money – it simply exchanges illiquid assets for liquid ones.

Neither the private bank nor the central bank create the value, either. The money is backed by the value of the future work the borrower does earning the money to pay back the loan.

And the seigniorage goes to the borrower – that’s the loaned money itself. It is of course fully returned and cancelled out as the loan is repaid.

Murph passed the 11+ and got into a grammar school. Twin brother didn’t. Murph (who has obviously benefited from the grammar school education) has been bitter about the unfairness to the brother ever since.

Apparently he was already woke about it all when he was 12 – like in 1970 or something.